The Best Credit Cards With No Annual Fee

NEW YORK (MainStreet) —While exclusive or elite credit cards provide cardholders with some swanky rewards, they also tend have high annual fees, anywhere from $395 to $2,500 dollars.

While this may sound exorbitant, industry experts explain it isn’t always unjustified.

“There’s a tipping point where annual fees make sense,” Ken Lin, CEO of CreditKarma.com, says. He explains that credit card issuers typically profit through interchange fees charged to merchants or through the annual percentage rates (APRs) of interest applied to balances.

But high-end credit users, who charge $30,000 or more a year on their cards, typically pay off their balances in full and the interchange fees incurred during their transactions are lost to the high rewards reimbursements designed to attract wealthy consumers.

“The annual fee is the way for issuers to recoup those profits,” Lin says.

For the average consumer, however, the trade-off is unnecessary, especially since most don’t travel enough to reap the added benefits like priority boarding, 24-hour concierge service or the waiving of foreign transaction fees that these high-fee cards offer.

However, rewards don’t always need to come with high annual membership fees. “There are certain cards with no annual fees that are just as good if not better,” says Curtis Arnold, founder of CardRatings.com.

MainStreet rounded up five cards that give consumers competitive rewards without charging them any annual fees, so take a look.

Capital One Cash

On the surface, Capital One’s Cash card has a relatively standard rewards program: cardholders get 1% cash back on all purchases. However, Capital One (Stock Quote: COF) also gives customers an extra 50% of all the cash back they have earned at the end of year, which Tim Chen, CEO of NerdWallet, says actually works out to a 1.5% return. “That’s great for a base rewards program,” he says.

Cardholders can also earn unlimited cash rewards that don't expire, but what’s even sweeter is that Capital One is also currently offering a $100 sign-up bonus to new customers who spend $500 in the first three months. The bank also offers a 0% introductory APR that lasts until September 2012. After that, the APR jumps to between 12.9% and 20.9%, depending on creditworthiness.

The PenFed Premium Travel Rewards American Express Card

We’ve told you about this card before, but it’s such a good deal we can’t help but mention it again. PenFed’s Amex (Stock Quote: AXP) gives cardholders five points for every dollar spent on airfare purchases and one point for every dollar spent on other purchases. The card doesn’t carry a foreign transaction fee and also offers complimentary 24-hour concierge service that helps consumers find additional travel discounts, which is particularly impressive considering it has no annual fee and an APR around 13.99%.

“The rewards are beyond pretty good,” Arnold says. The only drawback per se is that PenFed is a credit union and only members can apply for their credit card offerings. However, Arnold explains that membership is a bit of a formality as everyone is eligible to join if they make a one-time $15-$20 donation to one of the nonprofit organizations associated with PenFed.Blue Cash Everyday Card from American Express

Arnold says the best thing about Amex’s no-fee Blue Cash card is that it doesn’t have “the annoying rotating categories that you have to opt into” to receive maximum cash back. Instead, cardholders receive 3% back at supermarkets, 2% back at gas stations and departments and 1% back on other purchases made during the entire year.

Amex currently offers a 0% introductory APR for the first six months. After that, the APR will be 17.24%, 20.24% and 22.24%, depending on creditworthiness.

Chase Freedom

The Chase Freedom card is one of those rewards cards that has revolving 5% cash-back categories you have to opt into, but the restrictions placed on quarterly earnings aren’t as strict as some of its competitors. You earn cash back on up to $1,500 each quarter. (Comparatively, Discover’s More Card only lets cardholders earn 5% cashback on between $300 to $800 in purchases depending on the quarter.)

Additionally, Chase (Stock Quote: JPM) is currently offering a $100 sign-up bonus to consumers who spend $500 in the first three months of having the card, which Arnold calls “a low hurdle” to jump over. The bank is also offering a 0% APR for the first six months, after which the APR jumps to between 11.99% and 22.99%, based on creditworthiness.

Citi Dividend World MasterCard

Citi’s (Stock Quote: C) no-fee rewards card also features rotating 5% categories, but with a $300 maximum earning cap a year. However, the card currently features a $200 sign-up bonus to customers who spend $1,000 in the first three months of membership.

The card carries an APR between 12.99% and 20.99%, depending on the applicant’s creditworthiness.